Dollar soft ahead of FOMC decision – BBH
27.07.2022, 12:17

Dollar soft ahead of FOMC decision – BBH

“The dollar tends to weaken on FOMC decision days. DXY has fallen the past 3 meetings and 6 of the past 7,” explains Win Thin, Global Head of Currency Strategy at BBH.

Additional Quotes:

“We are not yet ready to change our strong dollar call, especially if the Fed delivers a hawkish message as we expect.  Yes, the U.S. economic data have been weakening but we do not think a recession is imminent.  When all is said and done, we believe the U.S. economy remains the most resilient.  However, we expect a period of consolidation ahead for the dollar until the U.S. economic outlook becomes clearer.”

“The two-day FOMC ends today and the Fed is widely expected to hike rates 75 bp to 2.50%.  WIRP suggests only 10% odds of a 100 bp move.  Updated macro forecasts and Dot Plots won’t come until the September meeting.  Another 75 bp hike September 21 is only about 45% priced in, with a 50 bp move favored then. A 25 bp hike is priced in for November 2 but after that, one last 25 bp hike is only partially priced in.”

“The swaps market paints a similar picture, with 175 of tightening priced in over the next 6 months that would see the policy rate peak near 3.5%.  Then, an easing cycle is priced in for the subsequent 6 months. This pricing is now more dovish than the June Dot Plots, which sees the Fed Funds rate rising to 3.75% in 2023 before falling to 3.375% in 2024.”

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